SOUTH BURLINGTON, Vt., July 27, 2015 /PRNewswire/ -- Merchants Bancshares, Inc. (NASDAQ: MBVT), the parent company of Merchants Bank, today announced net income of $3.12 million and $6.45 million, or diluted earnings per share of $0.49 and $1.02 for the three and six months ended June 30, 2015, respectively. This compares to net income of $3.41 million and $6.82 million, or diluted earnings per share of $0.54 and $1.07 for the three and six months ended June 30, 2014, respectively. The return on average assets was 0.72% for the three months and 0.75% for the six months ended June 30, 2015, compared to 0.82% for the same periods in 2014. The return on average equity was 9.73% and 10.15% for the three and six months ended June 30, 2015, respectively, compared to 11.15% and 11.23% for the same periods in 2014. Merchants Bancshares' Board of Directors approved a dividend of $0.28 per share, payable August 21, 2015, to shareholders of record as of August 7, 2015.

"Our results for the quarter demonstrate good progress in many revenue categories. We are especially pleased to see net interest income increase for the first time in a number of quarters. The acquisition of NUVO Bank in Springfield, Massachusetts remains on track to close in the fourth quarter. We are working actively with the management and staff at NUVO on planning for the integration of our two companies," commented Michael R. Tuttle, Merchants Bancshares' President and Chief Executive Officer.

"We are pleased with our commercial loan growth over the first half of the year. This loan growth coupled with expected improvement in our fee businesses and a focus on reducing noninterest expense will benefit our performance in the second half of 2015 and provide a nice foundation for 2016," added Geoffrey R. Hesslink, Merchants Bank's President and Chief Executive Officer.

Average loan balances for the three months ending June 30, 2015 were $1.22 billion, $33.1 million higher on a linked quarter basis and $56.6 million higher from the fourth quarter of 2014. Ending loan balances at June 30, 2015 were impacted by normal short-term seasonal reductions in municipal loans. Municipal balances stood at $91.7 million on July 15, 2015. Ending loan balances were $1.204 billion, an increase of $3.5 million from March 31, 2015 and $21.3 million from December 31, 2014. Total commercial loans increased $73.6 million to $687.5 million at June 30, 2015, which represents a year-to-date annualized commercial loan growth of 24%.

The following table summarizes the components of the loan portfolio as of the periods indicated:

(In thousands)

June 30, 2015

March 31, 2015

December 31, 2014

June 30, 2014

Commercial, financial and agricultural

$ 210,458

$ 195,782

$ 177,597

$ 193,806

Municipal loans

59,035

91,410

94,366

46,358

Real estate loans - residential

454,114

461,459

469,529

476,696

Real estate loans - commercial

438,622

419,500

412,447

372,825

Real estate loans - construction

38,435

28,512

23,858

32,336

Installment Loans

2,950

3,454

4,504

4,238

All other loans

41

53

33

252

Total Loans

$ 1,203,655

$ 1,200,170

$ 1,182,334

$ 1,126,511

Merchants Bancshares recorded a $100 thousand provision for credit losses during the three and six months ended June 30, 2015, compared to a $50 thousand and $150 thousand provision for credit losses during the three and six months ended June 30, 2014, respectively. Nonperforming loans were 0.12% of total loans at June 30, 2015, compared to 0.07% of total loans at December 31, 2014 and 0.08% of total loans at June 30, 2014. The increase in nonperforming loans from the prior year-end was primarily attributable to one commercial credit. Accruing loans past due 31-90 days were 0.04% of total loans at June 30, 2015. The Bank continues to experience exceptionally strong credit quality.

The average investment portfolio for the second quarter of 2015 was $378 million, an increase of $25 million from average balances for the second quarter of 2014, and an increase of $41 million from December 31, 2014. The ending balance in the investment portfolio at June 30, 2015 was $389 million, compared to $335 million at June 30, 2014 and $342 million at December 31, 2014.

Total deposits at June 30, 2015 were $1.35 billion, $38 million higher than balances at December 31, 2014 and $36 million higher than balances at June 30, 2014. Quarterly average deposit balances increased by $32 million to $1.35 billion, a 2% increase over quarterly averages for the second quarter of 2014. The increase is primarily attributable to moving the trust account deposits on to the balance sheet. Securities sold under agreement to repurchase, which represent collateralized customer accounts, were $170 million at June 30, 2015, a reduction of $89 million from $258 million at December 31, 2014, and an increase of $29 million from June 30, 2014. The reduction from the prior year-end was due to the municipality seasonality that also impacted our loan balances.

Merchants Bancshares' shareholders' equity and capital ratios remain strong. Shareholders' equity ended the quarter at $129.0 million, and the book value per share increased by $0.46 to $20.35 per share at June 30, 2015 from $19.89 at December 31, 2014. Effective January 1, 2015, Merchants Bancshares adopted the Basel III Capital Rules which added a new risk weighted capital measure Common Equity Tier 1 (CET1). At June 30, 2015 CET1 was 13.58%. At June 30, 2015, the tier 1 leverage ratio increased to 8.97%, total risk-based capital ratio decreased to 16.84% and the tangible capital ratio increased to 7.70% from 8.76%, 16.95% and 7.30%, respectively, at December 31, 2014.

Merchants Bancshares' taxable equivalent net interest income was $12.25 million for the three months ended June 30, 2015, compared with $12.06 million at March 31, 2015, and $12.14 million for the same period in 2014. The taxable equivalent net interest margin for the three months ended June 30, 2015 was 2.95%, flat on a linked quarter basis, and a decrease of 11 basis points from the second quarter of 2014.

Total noninterest income for the second quarter of 2015 was $2.75 million, a decrease of $196 thousand compared to the second quarter of 2014. For the first six months of 2015, noninterest income was $5.42 million, a decrease of $436 thousand from the same period a year ago. The decreases are attributable to lower overdraft fee income, partially offset by increases in service charges, debit cards, and trust fees. Merchants Trust division income increased from the quarter ended June 30, 2014 by $55 thousand, as trust division assets have continued to show growth at $661 million.

Total noninterest expense for the second quarter of 2015 was $10.34 million after excluding merger-related expenses of $143 thousand. This is a $336 thousand increase on a linked quarter basis. The increase is attributable to higher compensation and benefits of $142 thousand, state franchise taxes of $118 thousand and other non-recurring expenses.

Merchants Bancshares' effective tax rate was 20% and 21% for the three and six months ended June 30, 2015, respectively, compared to 21% on a linked quarter basis, and 23% for the three and six months ended June 30, 2014, respectively. The decrease in the effective tax rate from the second quarter 2014 is due to additional low income housing tax credits.

Michael R. Tuttle, Merchants Bancshares, Inc.'s President and Chief Executive Officer, Geoffrey R. Hesslink, Merchants Bank's President and Chief Executive Officer, and Thomas J. Meshako, Merchants Bancshares, Inc.'s Senior Vice President and Chief Financial Officer, will host a conference call to discuss these earnings results, business and outlook at 10:00 a.m. Eastern Time on Tuesday, July 28, 2015. Interested parties may participate in the conference call by dialing U.S. number (866) 218-2405, Canada number (855) 669-9657, or international number (412) 902-4124. The title of the call is Merchants Bancshares, Inc. Q2 2015 Earnings Call. Participants are asked to call a few minutes prior to register. A replay will be available until 12:01 a.m. Eastern Time on Wednesday, August 5, 2015. The U.S. replay dial-in telephone number is (877) 344-7529. The Canada replay telephone number is (855) 669-9658, the international replay telephone number is (412) 317-0088. The replay access code for all replay telephone numbers is 10057191. Additionally, a recording of the call will be available on Merchants website at www.mbvt.com

Non-GAAP Financial Measure. In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this press release contains certain non-GAAP financial measures. In several places net interest income is presented on a fully taxable equivalent basis. Specifically included in interest income was tax-exempt interest income from certain tax-exempt loans. An amount equal to the tax benefit derived from this tax exempt income is added back to the interest income total, to produce net interest income on a fully taxable equivalent basis. The amount added back was $508 thousand for the three months ended June 30, 2015, $504 thousand on a linked quarter basis and $525 thousand for the same period in 2014. An additional non-GAAP financial measure Merchants Bancshares' uses is the tangible equity ratio. Because Merchants Bancshares' has no intangible assets, the tangible equity is the same as the book equity. Merchants Bancshares believes that the supplemental non-GAAP information is utilized by regulators and market analysts to evaluate a company's financial condition and therefore such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.

Information About Pending Transaction. This communication does not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities.

On April 27, 2015, Merchants Bancshares, Inc. announced the proposed acquisition of NUVO Bank & Trust Company ("NUVO"), headquartered in Springfield, Massachusetts, pursuant to an Agreement and Plan of Merger dated as of April 27, 2015. Completion of the transaction is expected in the fourth quarter of 2015, subject to satisfaction of customary closing conditions, including the approval of NUVO's shareholders and receipt of required regulatory approvals. The proposed transaction will be submitted to the shareholders of NUVO for their consideration at a special meeting later this year. Merchants Bancshares, Inc. will file with the Securities and Exchange Commission a Registration Statement on Form S-4 that will include a proxy statement of NUVO, which will also constitute a prospectus of Merchants Bancshares, Inc. Investors and security holders are urged to read the registration statement and the proxy statement/prospectus regarding the proposed merger when it becomes available, as well as other documents filed with the SEC, because they will contain important information about the merger and the parties to the transaction. You may obtain a free copy of the proxy statement/prospectus (when available) and other related documents filed by Merchants Bancshares, Inc. with the SEC at the SEC's website at www.sec.gov. You will also be able to obtain a free copy of the proxy statement/prospectus, as well as other filings containing information about Merchants Bancshares, Inc. on its website, at www.mbvt.com.

Certain statements contained in this press release that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These statements, which are based on certain assumptions and describe Merchants Bancshares' future plans, strategies and expectations, can generally be identified by the use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions. Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. Actual results could differ materially from those projected in the forward-looking statements as a result of, among others, weakness in general, national, regional or local economic conditions, the performance of the investment portfolio, quality of credits or the overall demand for services; changes in loan default and charge-off rates which could affect the allowance for credit losses; declines in the equity and financial markets; reductions in deposit levels which could necessitate increased and/or higher cost borrowing to fund loans and investments; declines in mortgage loan refinancing, equity loan and line of credit activity which could reduce net interest and non-interest income; changes in the domestic interest rate environment and inflation; changes in the carrying value of investment securities and other assets; misalignment of interest-bearing assets and liabilities; increases in loan repayment rates affecting interest income and the value of mortgage servicing rights; changing business, banking, or regulatory conditions or policies, or new legislation affecting the financial services industry that could lead to changes in the competitive balance among financial institutions, restrictions on bank activities, changes in costs (including deposit insurance premiums), increased regulatory scrutiny, declines in consumer confidence in depository institutions, or changes in the secondary market for bank loan and other products; and changes in accounting rules, federal and state laws, IRS regulations, and other regulations and policies governing financial holding companies and their subsidiaries which may impact Merchants Bancshares' ability to take appropriate action to protect financial interests in certain loan situations.

You should not place undue reliance on forward-looking statements, and are cautioned that forward- looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, which are included in more detail in the Annual Report on Form 10-K, as updated by Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. Merchants Bancshares' does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

Contact: Jodi L. Bachand, Merchants Bank, at (802) 865-1807

Merchants Bancshares, Inc.

Financial Highlights (unaudited)

(Dollars in thousands except share and per share data)

June 30,

March 31,

December 31

June 30,

2015

2015

2014

2014

Balance Sheets - Period End

Total assets

$ 1,675,888

$ 1,694,985

$ 1,723,464

$ 1,608,943

Loans

1,203,655

1,200,170

1,182,334

1,126,511

Allowance for loan losses ("ALL")

12,162

11,989

11,833

12,040

Net loans

1,191,493

1,188,181

1,170,501

1,114,471

Investments-available for sale, taxable

259,556

248,987

203,473

188,593

Investments-held to maturity, taxable

129,312

134,245

138,421

146,848

Federal Home Loan Bank ("FHLB") stock

4,378

4,378

4,378

5,877

Cash and due from banks

26,721

25,627

23,745

39,423

Interest earning cash and other short-term investments

13,924

42,292

130,714

62,325

Bank owned life insurance

10,432

10,372

10,311

10,158

Other assets

40,072

40,903

41,921

41,248

Non-interest bearing deposits

572,169

583,486

566,366

286,374

Savings, interest bearing checking and money market accounts

575,524

541,878

530,722

763,427

Time deposits

199,132

204,433

211,684

260,898

Total deposits

1,346,825

1,329,797

1,308,772

1,310,699

Securities sold under agreement to repurchase, short-term

169,959

206,386

258,464

141,064

Other long-term debt

2,279

2,300

2,320

2,362

Junior subordinated debentures issued to

unconsolidated subsidiary trust

20,619

20,619

20,619

20,619

Other liabilities

7,231

7,422

7,468

9,237

Shareholders' equity

128,975

128,461

125,821

124,962

Balance Sheets - Quarter-to-Date Averages

Total assets

$ 1,731,063

$ 1,718,309

$ 1,692,286

$ 1,657,705

Loans

1,220,418

1,187,278

1,163,776

1,169,339

Allowance for loan losses

12,075

11,892

12,079

12,206

Net loans

1,208,342

1,175,386

1,151,697

1,157,133

Investments-available for sale, taxable

246,208

225,277

196,557

204,148

Investments-held to maturity, taxable

131,966

136,404

140,339

148,756

FHLB stock

4,378

4,378

4,378

6,428

Cash and due from banks

23,663

25,478

26,476

26,906

Interest earning cash and other short-term investments

66,247

102,394

124,913

60,928

Bank owned life insurance

10,395

10,334

10,270

10,110

Other assets

39,863

38,658

37,657

43,296

Non-interest bearing deposits

574,660

582,573

558,960

272,334

Savings, interest bearing checking and money market accounts

576,038

540,846

529,189

777,090

Time deposits

202,050

207,849

220,114

271,658

Total deposits

1,352,748

1,331,268

1,308,263

1,321,082

Short-term borrowings

6,099

-

-

752

Securities sold under agreement to repurchase, short-term

213,436

230,113

228,080

181,593

Other long-term debt

2,286

2,307

2,327

2,369

Junior subordinated debentures issued to

unconsolidated subsidiary trust

20,619

20,619

20,619

20,619

Other liabilities

7,833

7,708

7,139

8,813

Shareholders' equity

128,043

126,294

125,858

122,477

Earning assets

1,669,217

1,655,731

1,629,963

1,589,599

Interest bearing liabilities

1,014,429

1,001,734

1,000,329

1,254,081

Ratios and Supplemental Information - Period End

Book value per share

$ 20.35

$ 20.30

$ 19.89

$ 19.75

Common Equity Tier 1

13.58%

13.85%

N/A

N/A

Tier I leverage ratio

8.97%

8.95%

8.76%

8.79%

Total risk-based capital ratio

16.84%

17.17%

16.95%

16.76%

Tangible capital ratio (1)

7.70%

7.58%

7.30%

7.77%

Period end common shares outstanding

6,336,408

6,328,818

6,327,226

6,326,927

Credit Quality - Period End

Nonperforming loans ("NPLs")

$ 1,387

$ 1,298

$ 791

$ 888

Nonperforming assets ("NPAs")

$ 1,387

$ 1,298

$ 791

$ 888

NPLs as a percent of total loans

0.12%

0.11%

0.07%

0.08%

NPAs as a percent of total assets

0.08%

0.08%

0.05%

0.06%

ALL as a percent of NPLs

877%

924%

1496%

1356%

ALL as a percent of total loans

1.01%

1.00%

1.00%

1.07%

(1) The tangible capital ratio is calculated by dividing tangible equity by tangible assets. Because we have no intangible assets, our tangible shareholder's equity is the same as our shareholder's equity.

Merchants Bancshares, Inc.

Financial Highlights (unaudited)

(Dollars in thousands except share and per share data)

For the Six Months Ended

June 30,

June 30,

2015

2014

Balance Sheets - Year-to-Date Averages

Total assets

$ 1,724,721

$ 1,667,999

Loans

1,203,940

1,168,210

Allowance for loan losses

11,984

12,162

Net loans

1,191,956

1,156,048

Investments-available for sale, taxable

235,213

220,045

Investments-held to maturity, taxable

134,173

146,251

FHLB stock

4,378

6,956

Cash and due from banks

24,566

27,532

Interest earning cash and other short-term investments

84,221

60,225

Bank owned life insurance

10,365

10,070

Other assets

39,850

40,872

Non-interest bearing deposits

578,594

267,752

Savings, interest bearing checking and money market accounts

558,539

768,129

Time deposits

204,934

283,142

Total deposits

1,342,067

1,319,023

Short-term borrowings

3,066

378

Securities sold under agreement to repurchase, short-term

221,728

195,514

Other long-term debt

2,296

2,379

Junior subordinated debentures issued to

unconsolidated subsidiary trust

20,619

20,619

Other liabilities

7,771

8,689

Shareholders' equity

127,173

121,397

Earning assets

1,661,924

1,601,687

Interest bearing liabilities

1,008,116

1,270,161

Merchants Bancshares, Inc.

Financial Highlights (unaudited)

(Dollars in thousands except share and per share data)

For the Three Months Ended

For the Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2015

2015

2014

2015

2014

Operating Results

Interest income

Interest and fees on loans

$ 10,800

$ 10,623

$ 10,756

$ 21,423

$ 21,518

Interest and dividends on investments

1,972

1,983

2,080

3,955

4,333

Total interest and dividend income

12,772

12,606

12,836

25,378

25,851

Interest expense

Deposits

677

701

936

1,378

1,838

Securities sold under agreement to repurchase and other short-term borrowings

151

155

87

306

179

Long-term debt

199

197

200

396

397

Total interest expense

1,027

1,053

1,223

2,080

2,414

Net interest income

11,745

11,553

11,613

23,298

23,437

Provision for credit losses

100

-

50

100

150

Net interest income after provision for credit losses

11,645

11,553

11,563

23,198

23,287

Noninterest income

Trust division income

885

895

830

1,780

1,681

Service charges on deposits

378

340

329

718

646

Debit card income, net

812

693

715

1,505

1,336

Overdraft income

333

446

653

779

1,280

Gain (losses) on investment securities, net

-

-

17

-

143

Gain (losses) on sale of other assets

-

-

(35)

(35)

Other noninterest income

345

296

440

641

808

Total noninterest income

2,753

2,670

2,949

5,423

5,859

Noninterest expense

Compensation and benefits

5,190

5,048

4,838

10,238

9,761

Occupancy and equipment expenses

1,781

1,909

1,762

3,690

3,629

Legal and professional fees

537

437

502

974

949

Mobile & internet banking

410

386

293

796

699

Core / Item processing expense

433

406

459

839

922

Marketing expenses

137

152

323

289

642

State franchise taxes

404

286

379

690

756

FDIC insurance

217

218

217

435

433

Conversion costs

-

-

218

-

388

Merger costs

143

5

-

148

-

Other noninterest expense

1,229

1,160

1,399

2,389

2,070

Total noninterest expense

10,481

10,007

10,096

20,488

20,250

Income before provision for income taxes

3,917

4,216

4,416

8,133

8,896

Provision for income taxes

801

880

1,003

1,681

2,080

Net income

$ 3,116

$ 3,336

$ 3,413

$ 6,452

$ 6,816

Ratios and Supplemental Information

Weighted average common shares outstanding

6,331,487

6,328,623

6,324,753

6,330,063

6,322,563

Weighted average diluted shares outstanding

6,345,960

6,342,490

6,343,461

6,344,233

6,342,719

Basic earnings per common share

$ 0.49

$ 0.53

$ 0.54

$ 1.02

$ 1.08

Diluted earnings per common share

$ 0.49

$ 0.53

$ 0.54

$ 1.02

$ 1.07

Return on average assets

0.72%

0.78%

0.82%

0.75%

0.82%

Return on average shareholders' equity

9.73%

10.56%

11.15%

10.15%

11.23%

Average yield on loans

3.72%

3.80%

3.87%

3.76%

3.90%

Average yield on investments

2.02%

2.12%

2.28%

2.07%

2.30%

Average yield of earning assets

3.20%

3.21%

3.37%

3.20%

3.39%

Average cost of interest bearing deposits

0.35%

0.38%

0.36%

0.36%

0.35%

Average cost of borrowed funds

0.58%

0.57%

0.56%

0.57%

0.53%

Average cost of interest bearing liabilites

0.40%

0.43%

0.39%

0.41%

0.38%

Net interest rate spread

2.79%

2.78%

2.98%

2.78%

3.01%

Net interest margin

2.95%

2.95%

3.06%

2.95%

3.08%

Net interest income on a fully taxable equivalent basis

$ 12,249

$ 12,057

$ 12,138

$ 24,306

$ 24,495

Net recoveries (charge-offs) to Average Loans

0.01%

(0.03)%

(0.01)%

(0.00)%

(0.01)%

Net recoveries (charge-offs)

$ 27

$ (51)

$ (73)

$ (24)

$ (72)

Efficiency ratio (1)

65.42%

65.89%

62.28%

65.08%

62.81%

(1) The efficiency ratio excludes amortization of intangibles, OREO expenses, gain/loss on sales of securities, state franchise taxes, and any significant nonrecurring items. Amounts reported for prior periods are reclassified, where necessary, to be consistent with the current period presentation.